Shut it Down, Kick 'Em Out

The MetLife Lesson
Why 4,300 people are suddenly out of a job.
WSJ Editorial, January 20, 2012

You know something's wrong when a company like MetLife can't find a buyer for its mortgage unit, fires 4,300 workers, and its stock rises. But such is the condition of America's housing markets, where the risk of overregulation and litigation are so high that companies would rather abandon a business than take a risk on growing it.

MetLife is an illuminating example. Unlike Bank of America, which bought a shaky subprime lender in Countrywide and then had to take billions in losses when that market evaporated, MetLife got into the mortgage business in 2008 at the bottom of the market and snapped up a platform on the cheap. Its mortgage business soon spanned traditional loan origination, mortgage servicing and more.

Then came Dodd-Frank, the robo-signing pseudo-scandal, the state Attorneys General multibillion-dollar mortgage-servicing settlement talks, and the Obama Administration's various efforts to halt foreclosures. Housing prices kept falling. In October, the Federal Reserve—which regulates MetLife's banking subsidiary that backs its mortgage business—told the company it couldn't return $4.8 billion to shareholders as dividends or stock buybacks until after a round of stress tests. MetLife sold the bank to GE Capital and wanted to sell its mortgage business too, citing an "uncertain marketplace and regulatory environment" despite its rising market share.

But MetLife's mortgage business is so large that it could only be sold to big banks like Bank of America and Wells Fargo, and those companies need more mortgage exposure, with its accompanying risks, like they need a second Obama term. So MetLife concluded it was better to shut down its operations, take a $90 million to $110 million after-tax charge, and move on. Investors cheered.

Mortgages were less than 1% of MetLife's overall business, and the company may benefit from focusing on insurance, annuities and employee-benefit programs. But with MetLife's exit the market loses another mortgage competitor, diminishing competition and consumer choice. Wells Fargo alone now originates more than a quarter of all new home loans, according to Inside Mortgage Finance.

MetLife will keep its reverse-mortgage division open, ostensibly because it complements other products that it markets to senior citizens. But here, too, government plays a role: The Federal Housing Administration backs most reverse mortgages with 100% taxpayer guarantees.

The MetLife mortgage lesson is that even companies with the best risk assessments and strongest balance sheets can't compete with government gone wild. MetLife's shareholders may benefit from last week's announcement, but that's cold comfort for the 4,300 people who are now out of work.